Wednesday, 25 June 2014

When land rules are wrong, everything's wrong: episode 13 (or thereabouts)

When land use restrictions are wrong, it's hard for anything else to be right.

Today's example: what should be a great news story for New Zealand, that more people want to move to, or back to, New Zealand, instead turns into "Dey turk yer house!".

If we had a well-functioning housing market, increased demand for housing would be met by more townhouses and apartments downtown and new housing developments in the suburbs. The price of housing would go up a bit as resources were drawn into housing from other uses, but only by enough to draw those resources in.

Instead, Councils have made it awfully hard for supply to respond to changes in demand. Push out the demand curve with a relatively elastic supply curve and prices don't move much. Do it instead with a relatively inelastic supply curve and prices jump. The time path of housing prices follows migration patterns pretty closely, as Donal showed a few months ago. Easing up the supply restrictions would attenuate the migration-related housing price fluctuations.

It's easy for Kiwis to see foreign-looking people at house auctions in Auckland and elsewhere and blame them for taking the houses. It's harder to see the bureaucrats who've turned the housing market into gladiatorial combat for an existing stock of houses. I expect the anti-foreign baiting from the likes of Winston Peters; it disappoints me rather more when the Greens blame foreign "speculators" for the housing price surge. Update: and here's Labour.

I wonder how much anti-migrant sentiment in New Zealand would be attenuated if Councils hadn't made it the case that a house for a migrant is one fewer house for the median voter's kids.

HT on the Hosking editorial to WhaleOil.

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